LTC Insurers Share Common Bond of Double-Digit Rate Hikes With Health Writers

Posted on July 20, 2011.
By Fran Lysiak, AM BEST

OLDWICK, N.J. June 13 (BestWire) — Health reform has put the health
insurance industry under a microscope but medical loss ratios and
double-digit premium rate increases aren't unfamiliar terrain for
long-term care insurers. And the rate hikes they are requesting could be
giving them similar black eyes in the public realm.

Among the problems insurers are facing include product affordability, said Carl Austin, assistant vice president in the life/health division at A.M.
Best Co., noting the price of a policy is "considerably higher" from 10
years ago. They're also facing image problems due to companies that have
implemented "massive rate increases that have tainted the industry — many of whom were small or monoline long-term care companies that had financial
difficulties."

Some states, such as Florida and New York, are more difficult than others
in granting rate increases, Austin said. "Any time you are dealing with
seniors on fixed incomes, rate increases are a touchy subject."

In the annual statement, long-term care insurance is mostly found within
individual accident and health, said Austin. "We consider it more health
insurance although large life insurers are generally more active in
writing the coverage today."

Today, requested rate increases by LTC insurers range from 10% to 40%,
Austin said. Some companies had even higher requests a few years ago "when
they first discovered how underpriced their products were," he said,
noting they missed assumptions on persistency and investment returns and
misclassified underwriting classes, among others.

As with Medicare supplement and other senior health plans, regulatory
approval is necessary when LTC insurers seek premium rate increases,
Austin said. All rate increases for individual long-term care business
need prior approval from state insurance regulators before they are
enacted, he said.

Although a tiny market compared with health insurance, about 4.8 million
people in the United States had a long-term care insurance policy in force
last year, according to LIMRA. Frank Darras, a plaintiffs' attorney with
DarrasLaw, says he handles more LTC insurance litigation than any other
attorney in the United States. Elderly clients are "being beaten into the
claims mud" while getting hit with 50% rate increases, he said.

A senior would need to take on a rate increase fight at their state
department of insurance, Darras said, noting few seniors can spend
$250,000 to hire actuaries to battle an insurer over a $800 annual
increase. That's why rate hikes aren't getting the scrutiny as they are
with health insurance, he said.

During the late 1980s and 1990s, LTC insurance was oversold and
under-priced, with "too many bells and whistles" and benefits, Darras
said. As policyholders got older, they needed more care and also were
living longer, he said, noting medical care "isn't getting any cheaper."

Carriers have since been "crushed" with a deluge of claims, and seniors
are "on-claim" longer, he said. Carriers expected more seniors to lapse
their policies but instead they're keeping their coverage. Why? Because
they're "terrific policies," Darras said.

Jesse Slome, executive director of American Association for Long Term Care
Insurance, said companies "don't have an obligation to sell insurance."
They have an obligation to protect policyholders and return an investment
to stockholders or policyholders, he said.

Insurance regulators generally are approving requested rate increases by
carriers, Darras said, saying John Hancock said it will issue new coverage
but only if it gets significant rate increases. In a statement, John
Hancock said it's "selling new business now at rates that we believe are
appropriate for the market."

What line LTC is considered depends on how individual states define it,
said Monica Lindeen, vice-chairwoman of the National Association of
Insurance Commissioners' health insurance and managed care committee. One state may have a rate filing process for health, and in the definition of
health include long-term care, she said in an email. LTC insurance and
health insurance require different calculations to determine premium
rates, Lindeen said.

Health reform targets health insurers' medical loss ratios, or percentage of premium spent on medical care costs. Individual health plans must spend
at least 80% of premiums on medical costs.

Under Michigan law, LTC insurers must meet a 60% loss ratio requirement —
meaning at least 60 cents of every $1 in premium collected must be spent
on claims, a spokesman for the Michigan Office of Insurance and Financial
Regulation said in an email.

There's no mandated LTC loss ratio as that now primarily only applies to
major medical insurance, Austin said. The primary medical cost in the loss ratio is the cost of a facility, such as assisted living or nursing home,
he said. As for administrative costs, there's nothing "radically
different" from other health insurance lines.

LTC insurance doesn't pay for medical care even though it might be
provided by a skilled nurse, said Slome. It pays for "qualified" assisted
care. Most care is provided at home or in a non-nursing home facility,
Slome said, noting the average cost of a nursing home is $70,000 a year.